This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

July 5, 2012

Don’t Believe June Jobs Report, TrimTabs Says

Madeline Schnapp says revised figures will later confirm ‘we’re in the middle of a long-term depression’

While all eyes on Wall Street look to Friday’s Labor Department jobs report for a sense on the direction of the U.S. economy, TrimTabs economist Madeline Schnapp says those numbers will grossly overstate the depressing reality.

“What the market is demanding is not what the BLS is producing,” Schnapp (left) told AdvisorOne, noting that the BLS jobs report is based on mere survey data (i.e., not based on the entire population). TrimTabs’ proprietary model, which is based on income tax withholdings deposited daily with the U.S. Treasury, projects just 75,000 new jobs added in June, a 40% drop from its May estimate of 124,000 jobs.

“Our numbers show the economy is slowing. [The BLS data are] wrong and they will be proven wrong,” said Schnapp. The director of macroeconomic research for TrimTabs, an institutional investment research firm, Schnapp says the BLS will release its numbers for June, then a month later will revise that number and then a month later they will do a final estimate. “A year later they will benchmark to actual payroll reports,” which can result in revisions of 100% to 200%. “But nobody ever looks at those numbers,” Schnapp lamented.

The TrimTabs economist limited her criticism to BLS’ short-term, uncorrected data. “For long-term projections on the economy, it’s the best data set there is.”

TrimTabs’ view is that the economy needs to create a minimum of 150,000 jobs per month to absorb all the new people entering the labor force, so its June numbers suggest the U.S. is adding jobs at just half that rate.

“We think this economy is in a depression,” she said. “Unemployment for all people unemployed plus the marginally employed [i.e. part-time workers who would prefer full-time employment] is 16%,” Schnapp said.

“If you add all the people who are no longer counted—a lot of 50-year-old people who remained unemployed longer than a year —we’re probably at an unemployment rate of around 20 or 22%.”

Schnapp cited a familiar litany of grim statistics and trends—household net worth down 40%, shrinking credit, high unemployment, weak jobs growth, one in seven homes in foreclosure and 25% underwater, sovereign debt woes in Europe and the coming fiscal cliff in the U.S.—to underscore her depression thesis.

“We’re in the middle of a long-term depression that we’re not going to exit from for many years. The blow has [only] been softened by fiscal or monetary stimulus.”

Schnapp said easing the burdens on small business would go far toward reviving the economy, citing as an example the 17 different bureaucracies she would need to deal with if she wanted to open a winery in her Northern California home base of Sonoma County.

“It seems as time goes on that companies and businesses are being smothered by increasing volumes of regulation,” she said. “If you can unshackle American business from all the rules and regulations they have to comply with, you’ll create more jobs.”